Question

Jayesh makes $100,000 a year as a high-rise repairman (a high-risk job). Moreover, he and his family suffer from a variety of major health issues. According to the guidelines from the text, how much should Jayesh expect to pay for annual long-term disability insurance premiums?

a) A lower amount due to his high-risk job.
b) The standard premium based on his income.
c) A higher amount due to his health issues.
d) No premium, as his income is above average.

Answer 1

Jayesh, who has a high-risk job and major health issues, would expect to pay a higher amount for long-term disability insurance premiums due to his higher risk profile.

Step-by-step explanation:

Based on the principles of adverse selection in insurance markets, as defined in the text, Jayesh, a repairman who makes $100,000 a year and has major health issues along with a high-risk job, would likely expect to pay a higher amount for long-term disability insurance premiums. The text suggests that insurers use risk classification to determine premiums, charging higher premiums for those with higher risks. Since Jayesh is in a high-risk occupation and also has health issues, he falls into a higher risk category. According to the scenario presented with the automobile insurance, where the insurance company had to raise premiums due to not being able to distinguish between risk groups, it is clear that Jayesh might face higher premiums due to his high-risk profile. The correct answer would be c) A higher amount due to his health issues.